Evidently client's employees wanted to have a 401K provision added to the current retirement plan (an old profit sharing discretionary plan that has been amended and updated). The employees want the ability to put in pretax contributions of their own. He calls the investment company that handles his current plan and is told he should set up a Simple IRA plan, saying he could have both???? Did I miss something or did the client not understand. Can the employer have a Simple plus his old plan both together.????
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Nope
SIMPLE cannot be used in conjunction with another plan. He should look at a 401k with a profit sharing plan attached to it.I would put a favorite quote in here, but it would get me banned from the board. -
Most likely his old plan does not require contributions and is just a regular type of profit sharing plan. Profit sharing plans normally do not require contributions even if there is profit. Its not how many plans you have its what contributions are being made and to what plan. If he doesn't contribute to the old plan he can contribute to a new plan. In some cases he can contribute to both with an overall limitation as though it was just one plan.Originally posted by JONComment
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Under SIMPLE IRAs on page 13-17 of TTB, it says: “The employer cannot maintain another qualified plan (except for certain union employees).” That agrees with the language on page 9 of IRS Pub 560 which says: “You do not maintain another qualified plan unless the other plan is for collective bargaining employees.”Originally posted by OldJack
The pub goes on to say on that same page: “The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective.”
I would interpret that to mean money building up inside the profit sharing plan due to earnings would disqualify setting up the SIMPLE, even if contributions are not made to the profit sharing plan during the year.
I think you have to close it out before setting up the SIMPLE.Comment
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I learn something new everyday.Comment
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May be right
I still have not figured out the full question. A Simple "IRA" I think it is clear it can not be in combination with another plan by the same employer. What is left, the Simple 401K does this maybe have more options???? Wachovia's pension department, which was sold, but not transferred yet, is checking into it. Someone there thinks the Simple 401K will work and I think I would like that....Comment
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I think there are more options with 401(k) plans than before. Whether it is a SIMPLE 401(k) plan they are talking about, or a variation on that theme, I don't know. TheTaxBook on page 13-19 mentions a safe harbor 401(k) plan, which is basically the same as a SIMPLE 401(k) without the SIMPLE restrictions. It is my understanding that the safe harbor 401(k) gives you all the benefits of a regular 401(k) without all the complexe ADP testing and the like. The only requirement is that the employer would be required to match (which your profit sharing plan already does), and that the employees always have to be fully vested in the employer's contributions. That then would give you the character and simplicity of the SIMPLE 401(k) type plan without the SIMPLE restrictions.Comment
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And higer 401k contribution limits
I agree with your comments. The Safe Harbor 401k is a slick deal. Will however need a 5500 that the pension people may take care of.
DougComment
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